Europe Endorses 'Fiscal Compact'

by Ulrika Lomas, Tax-News.com, Brussels

01 February 2012

During the latest informal meeting of the European Council in Brussels, with its emphasis on growth-friendly fiscal consolidation and job-friendly economic growth, 25 of the 27 member states united on and endorsed plans for a fiscal compact, a treaty on stability and convergence in the Economic and Monetary Union.

Britain and the Czech Republic refused to agree to the treaty, which is aimed at enforcing stricter budgetary disciple and preventing excessive debt accumulation, and is due to be signed at the next meeting in March.

Commenting on the outcome of the summit, President of the European Council Herman Van Rompuy said:

“The treaty is all about more responsibility and better surveillance. Every country that signs it commits to bringing in a 'debt brake' or 'golden rule' into its own legislation, and will do so at constitutional or equivalent level.”

“New voting rules and an automatic correction mechanism will enforce compliance more effectively. 25 member states will sign it, that is all except the UK and the Czech Republic. The treaty will enter into force once 12 euro countries have ratified it.”

According to Van Rompuy, the agreement between the 17 eurozone member states on the treaty for the European Stability Mechanism was also endorsed, with finance ministers expected to sign it at the next Eurogroup meeting to ensure that it takes effect from July 2012.

He explained: “The early entry into force of this permanent firewall will prevent contagion in the euro area and further restore confidence.”

Finally, as agreed in December, the adequacy of resources under the EFSF and ESM rescue funds will be reassessed in March.

Concluding his remarks, Van Rompuy alluded to discussions concerning Greece, welcoming the progress made in the negotiations with the private sector, although urging the Greek authorities and the troika to agree on the steps to put the current programme back on track.

Van Rompuy urged finance ministers to take all necessary actions to implement the private sector involvement (PSI) agreement and to adopt the new programme swiftly, in time for the launching of the ‘PSI’ by mid-February.

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